The Sunday Mail
FINANCE and Economic Development Minister Mr Patrick Chinamasa last week performed a delicate juggling act, introducing measures he believes will help stimulate demand for goods and breathe life into a sick manufacturing sector.
Industrialists are confident that some of the interventions made by Treasury will help lift the economy, but they remain worried about the high wage bill.
Of the US$4,1 billion budget, 82 percent will be gobbled by civil servants’ salaries.
The country is currently plagued by multiple challenges such as biting cash shortages, rising unemployment and an influx of foreign goods.
Local manufacturers are struggling to access cheap funds.
But Minister Chinamasa’s 2015 National Budget hopes to achieve Zim Asset’s economic growth targets through a mix of tax concessions and higher duty on imports.
With capacity utilisation in the manufacturing sector dropping from 57,2 percent in 2011 to 36,3 percent this year, the minister was under pressure from industrialists to ban the importation of goods that can be produced locally or impose high taxes to cushion industry.
He obliged.
He also ring-fenced sectors that are performing well such as beverages and telecommunications through a special excise duty to be levied on sale of airtime and data by licensed operators, with effect from October 1 2014 instead of potential double taxation whereby sales between licensed service providers attract excise duty.
Excise duty on clear beer was cut by 5 percent to create demand.
The new measure takes effect from January 1 2015.
Although the tax-free threshold on incomes was increased from US$300 to US$350, economists are sceptical about the likely effects.
University of Zimbabwe economics lecturer Dr Albert Makochekanwa said the widening of the tax bands “would have no effect among employees in terms of liquidity”.
“There will be a marginal increase in liquidity because the figure is not enough. Only if he had increased it by US$150 or US$200 because we have complex issues . . .
“So it is a bit tricky overall when we combine with other measures, but I am not sure there will be a significant increase in liquidity,” said Dr Makochekanwa.
He voiced his worries on the allocation of 8 percent to capital expenditure and 82 percent to foot employment costs.
“That is not a good scenario; we want a situation where a bigger percentage of, say, 15 percent is directed to developmental activities so that at the end of the day we will be able to improve our capital for current and future productivity.”
Confederation of Zimbabwe Industries (CZI) president Mr Charles Msipa said industry was happy with the budget.
“We welcome the incentives for exporters, including the removal of withholding tax on agents that find markets for exporters, reduction in corporate tax for exporters, recapitalisation of Export Credit Guarantee Corporation, so that it can play its strategic role of promoting growth of exports.
“In addition, deferment of VAT for different investment thresholds to facilitate retooling is a welcome measure. The widening of the tax bands provide relief to taxpayers and should stimulate aggregate demand.
“Areas of concern — 82 percent of budget going towards employment costs — is too high (and) implementation of special economic zones should be tackled with greater urgency,” said Mr Msipa.
Recurrent expenditures continue to dominate overall expenditures accounting for 92 percent of total expenditures, leaving 8 percent for capital development programmes.
Likewise, United Food and Allied Workers Union of Zimbabwe (Ufawuz) general secretary Mr Adoniah Mutero said concessions for the new tax-free threshold were just a mirage for most employees as they are earning way less than US$300.
He said the increment was unlikely to help employees as most of them were not being taxed anyway.
“The minimum salaries are not anywhere near the US$300 . . .,” he said.
Widening of tax bands is, however, expected to release some resources for industry.
In addition, proposed measures to tighten the screws on imports will help the dairy, furniture and clothing industry.
Government in 2013 granted a rebate of duty on imported inputs such as fabric and trims for use in the manufacture of clothing after realising the great potential that the clothing industry had to grow the economy through the resuscitation of the value chain in the production of clothing.
The facility was subsequently extended for 12 months and is due to expire at the end of next month.
He explained that the rebate of duty on raw materials has assisted companies to compete against imports and has also attracted significant investment, thereby creating additional employment, hence the need to extend the facility by 12 more months.
Under the new dispensation, the rebate of duty on raw materials would include all clothing manufacturers who are registered after previously benefiting Archer Clothing (Pvt) Ltd, Paramount Export (Pvt) Ltd and Playtime Manufacturers.
Minister Chinamasa also extended the rebate of duty on capital goods, for a further 12 months to allow tourism players to complete refurbishing of facilities.
Tourism has been described as a low hanging fruit which requires nurturing so that the country benefits in the near future.
The tourism sector has embarked on massive campaigns to bring many tourists into the country and realised about US$5billion in receipts every year from 2017.
Cognisant of the centrality of tourism in economic turnaround, Government is also extending the suspension of duty on motor vehicles imported by safari operators by another 12 months to allow for the replacement of ageing game drive vehicles to guarantee provision of safe and high quality services.
The facility was put in place in 2009.
Minister Chinamasa also sought to boost the operations of companies through introducing a lower corporate tax structure for exporting companies.
Crucially, he proposed to remove royalties on rough diamonds sold to firms licensed to cut and polish diamonds with effect from January 1 next year to encourage beneficiation.
The country is believed to be home to about 25 percent of world diamonds but continues to scoop the wooden spoon as it sells raw diamonds, contrary to the demands of ZimAsset.
However, platinum miners have escaped a 15 percent export tax that was supposed to take effect from January 1, 2015 because local platinum producers have demonstrated efforts to beneficiate.
